In simple terms if the probably was only the ARMS, Paulson could take a small part of the 700 billion and buy them all down to an affordable level, however there is no way to buy down 283 +++ trillion derivatives. Just look at the obligation of citi and you will see. "The US' Citibank is selling its exposure to a $6bn debt at a loss after the syndication of the loan to the sovereign fund, the Investment Corporation of Dubai (ICD), failed to secure bank support."
Stated income loans USED TO BE reserved for the self-employed who could verify sufficent income through bank statements but not tax returns. Even this category was bastardized into a program to reach the "underserved" when Fannie/Freddie started accepting stated income loans for W-2 wage earners.
Government intervention killed the commonsense and self-preservation of the lending institutions with a marketing promise of "government backing."